Unconstitutionality considerations: The tax liability surviving the right to carry on business 1h203m

by Teodora Luca, Senior Lawyer at C.A. Luca Mihai-Cătălin g4j3z

Teodora Luca

In the context of the measures adopted by the authority over the past year, some of which were censored, even temporarily, by the courts, but also in light of the challenges that 2025 seems to bring in the gambling activity, the need for substantial reform of the legislation seems to us to be the only solution to regain predictability and stability in the field of gambling.

Within approximately 6 months, from October 2023 to July 2024, the primary legislation was amended  three times, each amendment and addition generating rather instability, lack of predictability, confusion and legislative inconsistency: the GEO 82/2023 amending GEO 77/2009 on the organization and operation of gambling, which entered into force in October 2023, was amended in April 2024, according to Law 107/2024, and once again, only two months later, in June 2024, by GEO 80/2024.

There is still no unified interpretation on the manner in which the contribution to the fund against addiction must be paid, the normative text is incomplete, the rules on self-exclusion are insufficient and inefficient, the obligations of entities holding Class II License are only partially regulated, and the examples of situations that, in the absence of regulation, are resolved by relying on good faith could go on for many lines.

Along with the pressure that the inconsistency of the regulation and the need for its successive and unexpected amendment have caused in the activity of operators, the normative act has generated more controversies in of the conditions of carrying out the activity than solutions.

For some companies, the identification of an alcoholic beverage on the premises of one of the betting shops was sufficient reason for the loss of the right to operate; for other operators, the authority considered (apparently unlawfully, as the court found) that the relocation of the gaming machines could only be done on the basis of the permit, although they were not interconnected to the jackpot, the decision to revoke the license being suspended by the court; the most recent measure with impact on a significant number of operators is the revocation of the licenses held by operators who did not increase the guarantee fund to the amount set by the new regulatory act.

In all these cases, the measure of revocation of licenses and authorizations is applied at the same time as the operators are required to pay the fees related to the organization and operation of gambling games until the expiry of the period of validity for which they were granted.

Although this is an evident legal paradox, the measure is covered by Art. 12 para. 5 and Art. 17 para. 9 of GEO 77/2009, which must be brought into line with constitutional rules when the next initiative to amend the law is taken.

Art. 12 para. 5 of GEO 77/2009:

 In the event that an economic operator no longer holds a valid gambling license, regardless of the reason that generated this state, the gambling licenses issued in its favor lose their validity with the same date, and the economic operator is obliged to pay the corresponding authorization fees, according to the provisions of Article 14, except for the situation provided in Article 17 para. (9²).

 Art. 17 para. 9 of GEO 77/2009:

Upon revocation of the license to organize gambling, during the suspension of the authorization to operate gambling or in any situation in which the organizer no longer operates means of gambling for which it holds a valid license and authorization(s), the economic operators organizers of gambling are obliged to pay the remaining difference from the annual fee related to the authorization(s) to operate gambling.

 A summary analysis of the provisions of Art. 12 para. 5 and Article 17 para. 9 of GEO 77/2009, suggests that the legislator’s intention was to establish the obligation for gambling organizers to pay the fees related to the gambling license (valid for 10 years) and the fees related to the gambling operating authorizations (valid for 1 year), even if they have ceased before the expiry of the term of validity, as a result of revocation measures applied by the authority or if the activity cannot be carried out, taking into the measure of suspension of the right, applied as an istrative sanction, in case of the finding of contraventions.

By reference to the provisions of Articles 44, 45 and 136 of the Romanian Constitution, private property is guaranteed and inviolable, and the state is the guarantor of free access of the person to an economic activity, free initiative and their execution, having also the obligation to ensure freedom of trade.

Any interference with or impairment of property rights cannot be valid unless expressly regulated by law, expropriation being provided for only for a cause of public utility, established according to law, with just and prior compensation, which is not applicable to the present situation.

The Constitutional Court, by Decision No. 448/2013, published in Official Gazette No. 5 of 7.01.2014, ruled that taxes due to the state budget presuppose the existence of a consideration, and that “one of the characteristics of a fiscal tax is that the person who pays the monetary contribution as a fiscal tax benefits from the provision of a service. Unlike a tax, in the case of duties the benefit is direct, so that the person paying the tax will immediately benefit from the payment by receiving the service requested‘.

Also, by Constitutional Court Decision no. 176/2003, published in Official Gazette no. 400 of 9.06.2003, it was held that “in accordance with the general principles of taxation, any tax imposed on natural or legal persons must be followed by a service or work performed directly and immediately by public bodies or institutions”.

In the case of the suppression of the right to operate the activity, following an istrative measure adopted by the authority, the company is prevented from carrying out the activity and, therefore, from obtaining revenues, therefore, in accordance with the constitutional rules, the economic operator may only be obliged to pay the tax related to the gambling operating permits calculated proportionally to the period during which it has actually carried out gambling activity generating revenues, under the license and exploitation authorisations issued by the ONJN.

Obliging companies to pay the fees for a period during which they have ceased to carry on business as a result of untimely changes to the conditions of operation of the business, which, in turn, led to the application of the measure of suppression of the right to organize and operate the business, amounts to unlawful expropriation, affecting its interests and economic freedom.

Dâmbovița Tribunal by Civil Judgment no. 935/2016, in which the provisions of Article 12 para. (5) of GEO no. 77/2009 held the following:

 “Authorization fees are tax receivables, to which the regime laid down in the tax code and the tax procedure code applies.

 It cannot be accepted the defendant’s interpretation of Article 12 para. (5) of GEO No 77/2006, to the effect that, even if the gambling activity is no longer carried on, the obligation to pay the licensing fees until the expiry of the operating permits comes into play, since this is contrary to all the principles of law, in the sense that you cannot be obliged to pay for something which you have not benefited from, the correct interpretation can only be that, where an economic operator no longer holds a valid gambling license, he can be obliged to pay the licensing fee only according to the period during which he obtained income from that activity.”

(…)

Moreover, from the interpretation of the provisions of Article 14 of GEO 77/2006, in particular paragraph (2), it can be deduced that the authorization fee is payable for each quarter, it is true in advance, but the advance payment cannot justify the defendant’s interpretation because it would amount to a real expropriation.

(…)

The taxes levied on gambling organizers are based (like most taxes) on the idea of taxing an income-generating activity, or if the income has not been obtained, a tax cannot be imposed”.

As also the court correctly qualified, the fee relating to the authorization for gambling exploitation has the meaning of a fiscal tax, and the concept of fiscal tax means that sum of money due and paid by natural persons and/or legal persons for certain acts or services performed or rendered by certain State bodies, public institutions or other persons assimilated to them.

Moreover, fiscal taxes are justified only to the extent that the State, through the public authorities, offers the payer a service in exchange, in this case the consideration consisting in granting the gambling organizer the right to organize and exploit gambling on the territory of Romania, otherwise the tax contravenes the constitutional principle of fair placement of fiscal burdens, becoming an indirect expropriation of the economic operator’s cash resources prohibited by law.

Therefore, the provisions of Art. 12 para. 5 and Art. 17 para. 9 of GEO 77/2009 are constitutional only in so far as they are interpreted as meaning that an economic operator who can no longer exercise the right to organize and exploit the activity, following the revocation of the license and authorizations, may be liable to pay the authorization fee only in relation to the period during which the right was exercised and the taxpayer has obtained income from that activity.

The Constitutional Court has constantly ruled that the principle of equal rights implies equal treatment for identical or similar situations.

Although the provisions of Art. 12 para. 5 and Art. 17 para. 9 of GEO 77/2009 aim at regulating an identical situation (loss of the right to organize and exploit the activity, following the revocation of the license to organize and the authorization to operate gambling), the rule creates discriminatory situations among the same category of taxpayers – gambling organizers.

Thus, while the obligations to pay the license and authorization fees, determined as a fixed amount, due on a monthly basis (in the case of slot machine gambling organizers) will apply until the date when the license and authorizations would have expired (the taxpayer being thus expropriated), in the case of activities for which the authorization fee represents a pro-rata share of the income earned, the termination of the right to organize and operate the activity determines the termination of payment obligations, in the absence of income, the fee not being due.

Such a legislative solution is, therefore, also susceptible of unconstitutionality by reference to the provisions of Article 16 of the Constitution.

As the budgetary context does not seem to be favorable to the business environment and, even less so, to revisions of the normative act in of taxes levied, even if they contravene constitutional principles, hopes for a remedy are turning to the Constitutional Court.

Pending the resolution of the exceptions of unconstitutionality, the decisions to revoke the licenses will continue to include the obligation to pay the related fees and operating authorizations, generating financial damage for operators, and social consequences for their employees, suppliers and contractual partners, the likelihood of companies defaulting on payments being significant.